Chief Fine Investments Ltd (in Liquidation) and Another v. Kingston Capital Investment Ltd and Others
Read the full judgment text of HCA 996/2022 on BabelCite. This High Court CFI judgment was delivered on 2 February 2024.
1. This is the 1 st and 5 th Defendants’ applications to strike out the Plaintiffs’ claim as set out in the Amended Statement of Claim (the “ ASOC ”) on the basis that (i) discloses no reasonable cause of action; (ii) is frivolous and/or vexatious; and/or (iii) an abuse of the process of the Court, and that the Action as against the 1 st and 5 th Defendants be dismissed accordingly, made by summonses dated 28 July 2023 and 25 July 2023 respectively pursuant to O 18 r 19(1) of RHC and inherent ju
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HCA 996/2022 [2024] HKCFI 400 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 996 OF 2022 _________________________ BETWEEN
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_______________ DECISION _______________ INTRODUCTION 1.This is the 1st and 5th Defendants’ applications to strike out the Plaintiffs’ claim as set out in the Amended Statement of Claim (the “ASOC”) on the basis that (i) discloses no reasonable cause of action; (ii) is frivolous and/or vexatious; and/or (iii) an abuse of the process of the Court, and that the Action as against the 1st and 5th Defendants be dismissed accordingly, made by summonses dated 28 July 2023 and 25 July 2023 respectively pursuant to O 18 r 19(1) of RHC and inherent jurisdiction of the court (“Striking Out Summonses”). 2.The Plaintiffs by summons dated 27 October 2023 also sought leave to adduce an additional 2nd Affirmation of Mr Tang Chung Wah Alan (“Mr Tang” or “Liquidator”) for the purpose of this hearing. The Plaintiffs withdrew the summons by consent at the hearing, with costs to the 1st and 5th Defendants to be paid by the Plaintiffs and agreed at HK$1,400 as summarily assessed. 3.On 29 September 2023, the Plaintiffs amended their Statement of Claim as of right, pursuant to O 20 r 3(1) of RHC. The amendments, contained in §§47 and 50 of the ASOC, consists of the deletion of the word “fiduciary”, such that the allegation of breach of fiduciary duties now becomes one of breach of duties. BACKGROUND 4.The Plaintiffs comprise Chief Fine Investments Ltd (in liquidation), a company incorporated in Hong Kong under the then Companies Ordinance (former Cap 32, laws of Hong Kong), which was wound up by an Order of the Court dated 18 September 2002 under HCCW 699/2002 (“1st Plaintiff”) and Mr Tang, one of the joint and several liquidators of the 1st Plaintiff appointed by the Court on 23 December 2002 (“2nd Plaintiff”), (collectively the “Plaintiffs”). 5.An order for the Plaintiffs to commence these proceedings pursuant to section 199 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32, laws of Hong Kong) (“CWUMPO”) was granted by Master To on 20 October 2022. This order takes effect on a retrospective basis. The 2nd Plaintiff commenced this Action as agent of and on behalf of the 1st Plaintiff pursuant to the leave granted. 6.The 1st Plaintiff (now in liquidation), the 3rd Defendant (now in liquidation) and the 4th Defendant used to be run and controlled by a Mr So Ching Wan (“Mr So”) and Madam He Xiao Ling (“Madam He”) prior to 2002. Mr So and Madam He were also adjudged bankrupt in or about 2002. 7.The 5th Defendant was one of the representatives of the 1st Defendant sent in 2002 to take control of the 3rd Defendant as confirmed in his 3rd Affirmation filed under HCB 4475/2002 (bankruptcy case of Mr So) dated 9 January 2019. 8.In or about 1992, Mr So caused the 3rd Defendant to acquire the following land lots (“Assen Lots”) for approximately HK$13 million:
9.In or about 1993, So caused the 4th Defendant to acquire the following land lots (“Sky Fair Lots”) for approximately HK$2 million:
10.It is the Plaintiffs’ case that the 1st Plaintiff provided funding for about $HK$16,402,825.04 to purchase the Properties. 11.Part of the Assen Lots were resumed by the Government in or about 1998 for HK$6 million (“Resumption Monies”), which were released by the Government in 2005/2006. The remainder of the Assen Lots are referred to as “Remaining Assen Lots” and, together with the Sky Fair Lots, are referred to as the “Remaining Properties.” 12.On 25 July 1996, a loan agreement for HK$10 million was signed between the 1st Plaintiff as the borrower, the 1st Defendant as the lender, the 3rd Defendant and the 4th Defendant as the mortgagors, and Mr So and Madam He as co-guarantors (“Loan Agreement”). By various supplemental agreements, the total loan amount was increased to HK$16 million (“Supplemental Loan Agreements”) (collectively the “Loan” and “Loan Agreements”). 13.As a result of the defaults of the 1st Plaintiff in repaying the Loan, with Mr So and Madam He also failing to make good their respective personal guarantees, the 1st Defendant obtained judgment for the Loan Agreements and took possession of the Remaining Properties in or about 2001 in HCMP 5367/2000. 14.On or about 10 August 2016, the 1st Defendant sold those Remaining Properties to the 2nd Defendant through a public auction. As a result, the 1st Defendant transferred the Remaining Assen Lots to the 2nd Defendant by way of Memorandum of Agreement for Sale and Purchase dated 10 August 2016 (Memorial No 16090500230019) and Assignment dated 25 August 2016 (Memorial No 16091500210032). 15.It is the Plaintiffs’ case that:
16.The 1st Defendant surrendered the security provided by the 3rd and 4th Defendants over the Properties as a consequence of how it voted in the respective creditors’ meetings of Chief Fine (1st Plaintiff), Mr So and Madam He under r 126 of the Companies (Winding-up) Rules (Cap 32H) and r 99I of the Bankruptcy Rules (Cap 6A): §§29, 31, 33 of the ASOC (the “Surrender Allegation”). 17.Accordingly, the Plaintiffs seek to set aside the sale of the Remaining Properties by the 1st Defendant (as mortgagee in possession) to the 2nd Defendant in 2016 as (i) the Remaining Properties were at all material times beneficially owned by the 1st Plaintiff; and (ii) the sale was a sham or otherwise at an undervalue brought about by the dishonest design of the 1st, 2nd and/or 5th Defendant. 18.The 5th Defendant filed the Affirmation of Chan Ka Wang Kelvin on 25 July 2023 in support of the 5th Defendant’s Striking Out Summons. 19.The 1st Defendant filed the Affirmation of Tan Bingqi on 31 July 2023 in support of the 1st Defendant’s Striking Out Summons. 20.The Plaintiffs filed the Affirmation of Mr Tang on 25 September 2023 in opposition to the Striking Out Summonses. 21.The 5th Defendant filed the Affirmation of Cheung Ying Ho on 9 October 2023 in reply to Mr Tang’s Affirmation. 22.The 1st Defendant filed the 2nd Affirmation of Tan Bingqi in reply to Mr Tang’s Affirmation. 23.By letter dated 3 August 2023, Messrs Keith Lam Lau & Chan on behalf of the 1st Defendant informed Messrs K B Chau & Co on behalf of the Plaintiffs that the broad grounds of the 1st Defendant’s striking out application have been set out in the Affirmation of Tan Bingqi. Insofar as the application to strike out is based on the ground that the Statement of Claim discloses no reasonable cause of action, the 1st Defendant will contend inter alia that: (1) the 1st and 2nd Plaintiffs allegation that the 1st Plaintiff is the beneficial owner of the Assen Lots and the Skyfair Lots and that the 1st Defendant shall be liable to the 1st Plaintiff under such a trust is defective, muddling and/or embarrassing; (2) the 1st and 2nd Plaintiffs’ allegation that the sale of the Assen Lots and the Skyfair Lots via auction was undervalue is defective, muddling and/or embarrassing; (3) the facts pleaded in the Statement of Claim do not justify inferences that the 1st Defendant has or had any fraud and/or dishonesty on its part or have at any time conspired against the 1st and 2nd Plaintiffs to cause any loss or damage; and (4) without prejudice to (1) and (3) above, other allegations pleaded by the 1st and 2nd Plaintiffs in the Statement of Claim are defective, irrelevant, and/or serve no meaningful purpose. 24.By letter dated 3 August 2023, Messrs Hom & Associates on behalf of the 5th Defendant informed Messrs K B Chau & Co on behalf of the Plaintiffs that the broad grounds of the 5th Defendant’s striking out application on the basis that the Statement of Claim discloses no reasonable cause of action are: (1) the 1st Plaintiff, and thus the 2nd Plaintiff, have no locus standi to pursue this action in that the Statement of Claim does not make out a case that the 3rd and 4th Defendants respectively held the Assen Lots and the Sky Fair Lots in their names on trust, whether constructive trust or otherwise, for the 1st Plaintiff; (2) in any event, the Statement of Claim does not make out a case: (a) that the 5th Defendant owed any fiduciary duty to the 1st Plaintiff in that it does not identify any basis that gave rise to the same; and (b) (i) of fraud or dishonesty on the part of the 5th Defendant; and (ii) of a conspiracy against the 5th Defendant, in that the facts as pleaded do not justify inferences that the 5th Defendant committed fraud, dishonesty or a conspiracy. 25.Mr George Chu made submissions on behalf of the 1st and 2nd Plaintiffs. Mr Vincent Lung made submissions on behalf of the 1st Defendant, and Ms Austina Au made submissions on behalf of the 5th Defendant. PRELIMINARY MATTERS 26.In terms of procedural matters, Mr Chu raised two issues. 27.First, it was alleged that the Practice Directions 19.1 had not been complied with in that counsel had not prepared a letter stating the grounds for striking out. 28.Second, on 29 September 2023, the Plaintiffs amended their Statement of Claim, as of right, pursuant to O 20 r 3(1) of RHC. Neither defendants exercised their entitlement under O 20 r 4(1) of RHC to issue, within 14 days of 29 September 2023, a summons seeking to disallow any of the amendments in the Plaintiffs’ ASOC. Mr Chu submits that the present position is as follows:
29.Mr Chu submits there is clear law that if a summons was taken out for striking out and then the Defendants do not object to the amendment of the Plaintiffs’ ASOC within 14 days of service, then the summons is deemed to be outdated and should be dismissed. 30.Mr Chu referred me to §4 of the judgment of Harris J in Alan Chung Wah Tang and Kan Lap Kee v Chung Chun Keung (unreported, HCA 64/2020, 16 December 2021). In that case: (i) none of the Defendants exercised their right under O 20 r 4(1) of RHC within 14 days of service of the Amended Statement of Claim to apply to the Court for the amendments to be disallowed. Mr Barlow, who appeared for the plaintiff in that case, invited the court to dismiss the summons on the basis that it is redundant and that if the defendants had wanted the Court to strike out the Amended Statement of Claim they should had issued a summons to amend the existing one: O 32 r 2(2) of RHC; (ii) the Summons lists all the four grounds referred to in O 18 r 19(1) of RHC. It does not identify whether one ground is the principle basis for making the application. Practice Directions 19.1 Part III requires, in applications to strike out pleadings as disclosing no reasonable cause of action or where no letter has been written by counsel for the applicant to counsel for the respondent signifying his intention to make the application stating on which ground the application will be made, that the applicant should inform the respondent of the grounds in writing at least five clear working days before the day fixed for the hearing. This has not been done; and (iii) the defendants’ skeleton argument makes no reference to O 18 r 19 of RHC, any of the grounds specified in it or the principles, which govern the determination of strike out applications (at §§3 and 4). On that basis, Harris J ordered the Defendants to amend that Summons and identify precisely what part of the Amended Statement of Claim is attacked and why (at §5). 31.This case is different. The only amendments in the ASOC are the deletions of the words “their fiduciary” in §§47 and 50 respectively, such that the allegation of breach of fiduciary duties now becomes one of breach of duties. The Plaintiffs knew from the letters as referred to below, the affirmations filed in support of the Striking Out Summonses, and the skeleton arguments of the 1st and 5th Defendants the precise grounds of striking out and what parts of the ASOC are attacked and why. 32.I am of the view that Practice Directions 19.1 Part III § 5 has been complied with. I refer to Messrs Keith Lam Lau & Chan’s letter of 3 August 2023 to Messrs K B Chau & Co, and Messrs Hom & Associates’ letter dated 3 August 2023 to Messrs K B Chau & Co (see also letters dated 4 September 2023 and 29 August 2023 respectively). These letters refer to Practice Direction 19.1 and the broad grounds, inter alia, which the 1st and 5th Defendants rely on to strike out the claims against them in the Statement of Claim as disclosing no reasonable cause of action. 33.The letter does not need to be from counsel. §18/19/3(3) of Hong Kong Civil Procedure 2023 provides that:
34.As to Mr Chu’s second complaint concerning the Striking Out Summonses, the 1st and 5th Defendants expressly noted the ASOC and informed the Plaintiffs that given the amendments, the subject matter of the Striking Out Summons would be the ASOC: letter from Hom & Associates dated 9 October 2023 for the 5th Defendant and the 2nd Affirmation of Tan Bingqi filed on 9 October 2023 at §§1 and 4 for the 1st Defendant. APPLICABLE PRINCIPLES: STRIKING OUT 35.O 18 r 19 of RHC provides as follows:
36.O 18 r 19(2) excludes evidence (whether by the applicant or the respondent) on an application under O 18 r 19(1)(a) that the ASOC discloses no reasonable cause of action. I am not entitled to look at any evidence to assess the extent to which the claim discloses a reasonable cause of action, and I must look only to the ASOC, assuming that all facts set out in the ASOC will be made out. 37.Under O 18 r 19(1)(a) of RHC, the Court is obliged to look at the indorsement on the writ or the pleading without extrinsic evidence and decide whether on the assumption that the facts as pleaded are true, the indorsement or pleading discloses a cause of action or defence in law (Attorney General of the Duchy of Lancaster v London and North Western Railway Co [1892] 3 Ch 274, 278 (CA) (AL Smith LJ); Hong Kong Polytechnic University v Next Magazine Publishing Ltd [1996] 2 HKLR 260, 261 (Keith J); Beijing Television v Brightec Ltd [1999] 2 HKC 665, 674E (CA) (Nazareth VP)). However, Lam J in Lam Kit Sing v Chungshan Commercial Association, Hong Kong (HCA 2011/2014, [2016] HKEC 1616), issued the following reminder (see §18/19/3 of Hong Kong Civil Procedure 2023):
38.It is only in plain and obvious cases that the court should exercise its summary powers to strike out the indorsement on any writ or any pleading under O 18 r 19. There should be no trial upon affidavit. Disputed facts were to be taken in favour of the party sought to be struck out. Nor should the court decide difficult points of law in striking out proceedings. The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out. If the Court does not think the matter to be clear beyond doubt or if it fails to be satisfied that there is no reasonable cause of action or that the proceedings are frivolous or vexatious, then, there should be no striking out. One must be careful not to drive a plaintiff from the judgment seat nor should the court decide difficult points of law (Ha Francesca v Tsai Kut Kan (No 1) [1982] 1 HKC 382 (CA)). See also Lam Pak Cheung v Lin Zhen Lue [2009] 1 HKLRD 35 and §18/19/4 of Hong Kong Civil Procedure 2023. 39.The applicant bears the burden to show a plain and obvious case in order to strike out the plaintiff’s claim: Waddington Ltd v Chan Chun Hoo (2008) 11 HKCFAR 370; Melvin Waxman v Li Fei Yu (HCA 1973/2012, [2013] HKEC 1341). 40.The principles for striking out have also been helpfully summarised by Recorder Manzoni KC SC in Polyline Development Ltd v Ching Lin Chuen [2021] HKCFI 4831 at §§10-13, 15 as follows:
DISCUSSION TRUST ALLEGATION 41.The Plaintiffs’ Trust Allegation as pleaded at §14 of the ASOC is predicated on providing funding in the sum of HK$16,402,825.04 for the purchase of the Properties. Accordingly the Properties were held by the 3rd and 4th Defendants on trust (mere trustee) for and on behalf of the 1st Plaintiff. Alternatively, the 3rd and 4th Defendants were constructive trustees of the Properties for the 1st Plaintiff. 42.In respect of the Trust Allegation, Mr Lung made submissions under the vexatious, frivolous, and abuse of process grounds for striking out pursuant to O 18 r 19(1)(b) and (d) of RHC. 43.According to Mr Lung, once it is disposed of, other allegations (in particular the Surrender Allegation) are not matters that the Plaintiffs have locus to complain about, because the 1st Defendant simply had and has no interest in the Properties (and therefore the Resumption Monies and the Sale Proceeds). 44.The 1st Defendant advanced three reasons why it is impossible, and not just improbable, for the Plaintiffs to succeed on the Trust Allegation:
45.Mr Lung submits that for these three points, each one of them is sufficient in itself so that it is impossible for the Plaintiffs to succeed in establishing that the 1st Plaintiff is the beneficial owner of the Properties. 46.I now turn to the three points. (a) Contractual estoppel 47.The Court needs to examine the terms of the Loan Agreement, the Supplemental Loan Agreements, and the Legal Charge to determine whether the Plaintiffs are contractually estopped from establishing that the 1st Plaintiff is the beneficial owner of the Properties. The Loan Agreement 48.On 25 July 1996, the 1st Defendant (as lender), 1st Plaintiff (as borrower) and the 3rd Defendant and 4th Defendant (as mortgagors) executed the Loan Agreement for HK$10,000,000. 49.The Loan Agreement provides, among others, the following:
The Supplemental Loan Agreements 50.The parties subsequently entered into three Supplemental Loan Agreements dated 10 July 1997, 15 June 1998, and 10 June 1999, the cumulative effect of which was to increase the Loan to HK$16,000,000 and extend the repayment date to 24 July 2000. The 1st Plaintiff is a party to all three Supplemental Loan Agreements. 51.Clause 12(a)(i) of the Supplemental Loan Agreements “Representation and Warranties” provide the following:
52.Each of the Supplemental Loan Agreements contains the same Recital (A), Recital (B) and Clause 12(a)(i) confirming that the 3rd and 4th Defendant (as the case may be) is the only legal and beneficial owner of the Properties, and that no other person has any interest (legal or beneficial) in the same. The Legal Charge 53.By a legal charge dated 25 July 1996 (“Legal Charge”), the 3rd and 4th Defendants respectively charged the Assen Lots and Sky Fair Lots to the 1st Defendant as security for the credit facilities provided by the 1st Defendant to the 1st Plaintiff. The 1st Plaintiff was a party to the Legal Charge. 54.The Legal Charge provides, among others, the following:
55.The land described in the Schedule, in turn, refers to the Assen Lots and some other lots which were meant to but did not accurately describe the Sky Fair Lots. The error was corrected by way of the Deed of Variation of Legal Charge executed on 23 July 1997. 56.Each of the above contractual documents and/or instruments confirms the 3rd Defendant to be the beneficial owner of the Assen Lots (and subsequently the Remaining Assen Lots after the resumption by the Government), and the 4th Defendant to be the beneficial owner of the Sky Fair Lots, with the Properties to be mortgaged to the 1st Defendant as security for the Loan to the 1st Plaintiff. 57.The court notes that the 1st Plaintiff was a party to all the above contractual documents and/or instruments. 58.Contractual estoppel is said to arise when contracting parties have, in their contract, agreed that a specified state of affairs is to form the basis on which they are contracting or is to be taken, for the purposes of the contract, to exist. The effect of such contractual estoppel is that it precludes a party to the contract from alleging that the actual facts are inconsistent with the state of affairs so specified in the contract. Contractual estoppel gives effect to a term of a contract which, on its true construction, prevents a party from denying facts specified in that term and in the circumstances (if any) specified in it. Contractual estoppel arises as a result of the contract, not a convention. It does not require does not require a representation, or reliance, or unconscionability: Chitty on Contracts (35th edn) at §§7-029 and 7-030. 59.The doctrine of contractual estoppel was recognised in Hong Kong in Nokia Corporation v TCT Mobile Ltd [2017] 3 HKC 102. Where the terms of the agreement assume or stipulate a certain state of affairs to be the case, the parties will be bound to proceed on the basis that this is the position for the purposes of the agreement, whatever the true state of affairs may be as a matter of actual fact. At [24], Barma JA alluded to the utility of the doctrine “as it would promote certainty in contractual relationships, and reduce the scope for disagreement and disputes in the working out of the contract.” 60.In Ng Yuk Pui Kelly v Ng Lai Ling Winnie (2021) 24 HKCFAR 401, Ribeiro PJ (at §§25-26) referred to the decisions of Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] 1 CLC 582 and Springwell Navigation Corp v JP Morgan Chase Bank [2010] 2 CLC 705 that discussed the doctrine of contractual estoppel. 61.In Peekay, Moore-Bick LJ explained the operation of the doctrine of contractual estoppel by reference to what was agreed between the contractual parties [at 56]:
62.In Colchester Borough Council v Smith [1992] Ch 421 as referred to by Moore-Bick LJ in Peekay, it was held that an occupier of land was estopped from asserting that he had acquired an adverse possessory title in subsequent proceedings after he had entered into a compromise in an earlier set of proceedings with an acknowledgment that his occupation was not adverse possession. Hence, the estoppel operated to preclude the adoption of a different position in respect of the same set of relationship between the same parties in subsequent proceedings. 63.In Springwell Navigation Corp v JP Morgan Chase Bank, Aikens LJ stated the principle as follows [at 143]:
64.Thus, the rationale stems from the adoption by the parties to a transaction of a specific basis for conducting their relationship arising from the agreement: Ng Yuk Pui Kelly v Ng Lai Ling Winnie [2021] 5 HKC 1 per Lam VP in the Court of Appeal at §69. 65.In Ng Yuk Pui Kelly, Kuen bought two flats which were registered under the name of his wife Mrs Ng. Kuen allowed Kelly, his brother, to use and occupy the flats at a monthly rent. Kuen and Kelly later entered into an oral agreement whereby Kuen sold the flats to Kelly for $1 million. Thereafter Kelly stopped paying rent and took up payment of the management fees and rates. Over the years, Kelly repeatedly requested that the title to the flats be assigned to him but was persuaded by Kuen each time to allow Mrs Ng to remain as registered owner. On one occasion, Kelly asked for the title to be assigned to him so that he could mortgage the flats to raise capital for his business, but was instead persuaded to have Mrs Ng execute a mortgage to secure banking facilities for him. 66.The applicants in Ng Yuk Pui Kelly sought to contend that by virtue of the mortgage and further charge signed by Mrs Ng and Kelly in which Mrs Ng declared herself beneficial owner of the flats, Kelly was contractually estopped from denying her beneficial ownership and claiming such ownership for himself and so was precluded from pursuing his action to recover the properties. 67.In the Court of Appeal judgment, Lam VP rejected submissions that clauses in the 1987 Mortgage and the 1990 Further Charge constituted an agreement by Kelly to the following state of affairs: that Mrs Ng was the beneficial owner of the Flat by virtue of the principle of contractual estoppel, and Kelly is precluded from disputing such state of affairs in all litigations between him and Mrs Ng. This was on the basis that (at §76):
68.In Ng Yuk Pui Kelly, the clauses relied upon for contractual estoppel were contained in the 1987 Mortgage and the 1990 Further Charge. However, the court was not concerned with any litigations arising from the transactions embodied in the 1987 Mortgage or the 1990 Further Charge. The bank loans had been discharged in 2011. Lam VP observed that (at §77):
69.In the Court of Final Appeal judgment, Riberio PJ ruled that the applicant could not rely on contractual estoppel for the following reasons:
70.Mr Chu on behalf of the Plaintiffs addressed the Loan Agreement, Supplemental Loan Agreements, and Legal Charge by observing that the Liquidators were not a party to those documents. He conceded that the documents bound the 1st Plaintiff as a party to those documents but the legal documents do not bind the 2nd Plaintiff as Liquidators. Accordingly contractual estoppel does not apply to the 2nd Plaintiff. For the 1st Plaintiff, he submitted that it was not an interlocutory step that shut out the parties. He pointed to the Ng Yuk Pui Kelly case where the evidence was heard and the case proceeded to trial. 71.In response, Mr Lung submitted that contractual estoppel is a matter of law. All one needs to look at is the contract: first, who are the parties, and second, what are the contractual terms? It is irrelevant whether it is a trial or an interlocutory matter as the principle applied whether at trial or in an interlocutory application. 72.Regarding the contractual parties, although it was submitted that the 2nd Plaintiff was not a party to the contractual documents and/or instruments and therefore contractual estoppel does not apply to the Liquidators, the Liquidators were Liquidators of the Company, the 1st Plaintiff. The Liquidators should not have a cause of action over and above what the Company has, and no authorities have been provided by the Plaintiffs in support of this. 73.In Ng Yuk Pui Kelly, the necessary parties were not parties to the contractual documents so Riberio PJ of the Court of Final Appeal ruled that the applicant Mrs Ng could not rely on contractual estoppel. 74.In this case, as acknowledged by Mr Chu, the 1st Plaintiff was a party to all the contractual documents which included the 1st, 3rd and 4th Defendants. The documents confirmed that the 3rd and 4th Defendant (as the case may be) were the only legal and beneficial owner of the Properties, and that no other person has any interest (legal or beneficial) in the same. 75.Given the 1st Plaintiff defaulted under the Loan Agreements, the 1st Defendant commenced a mortgagee action under O 88 of RHC against the 1st Plaintiff and the 3rd and 4th Defendants – as the registered, legal, and beneficial owners of the Properties on 18 October 2000 in HCMP 5367/2000. 76.As a result of the O 88 Action, judgment in the sum of HK$21,090,773.33 and a possession order in respect of the Remaining Properties was granted to the 1st Defendant on 28 February 2001. 77.Through enforcement of the O 88 Judgment, the 1st Defendant obtained possession of the Remaining Properties in around November 2005, and took steps to sell the same by way of a public auction. 78.In this case, the same Properties are in issue that the 1st Plaintiff, being a party to the relevant contractual documents, had already agreed a state of affairs in the Loan Agreement, Supplemental Loan Agreements, and Legal Charge – that the 3rd and 4th Defendant were the legal and beneficial owners of the Properties and no other person has any interest (legal or beneficial) in the same. 79.Contractual estoppel operates to preclude the adoption of a different position in respect of the same set of relationships between the same parties in subsequent proceedings. I am of the view that contractual estoppel operates in favour of the 1st Defendant to preclude the 1st Plaintiff from disputing the enforcement of the security interest under the Loan Agreement, Supplemental Loan Agreement and Legal Charge in respect of the Properties on the basis that the 3rd and 4th Defendants were not the legal and beneficial owners of the Properties. It also precludes the 1st Plaintiff from adopting a different position in these subsequent proceedings that the Properties were held by the 3rd and 4th Defendants on trust (mere trustee) for and on behalf of the 1st Plaintiff. Alternatively, the 3rd and 4th Defendants were constructive trustees of the Properties for the 1st Plaintiff. 80.Contractual estoppel is a rule of law and the principle is applied whether at trial or in an interlocutory application. 81.If the 1st Plaintiff is contractually estopped from adopting a different position in these proceedings, then the 2nd Plaintiff as the Liquidators should not have a cause of action over and above what the Company has. 82.Given that I have ruled that the Trust Allegation is unsustainable and impossible to succeed on the basis of contractual estoppel, the Plaintiffs do not have any locus to sue in this Action. The claim should be struck out on that basis. (b) Evidence 83.It was submitted by Mr Lung that the Trust Allegation is also contrary to the Plaintiffs’ own evidence and prior stance in the following ways:
84.Mr Chu submitted that there should not be a trial on affidavit evidence. He submitted it was unmeritorious to rely on evidence in another case. 85.Mr Lung submitted in response that there is a line to be drawn when the Court considers evidence as to whether the strike out threshold has been met. This threshold has been met when three separate pieces of evidence all from the Plaintiffs all contradict their position regarding the Trust Allegation. Two of the documents (the receipt and statutory declaration) were contemporaneous documents that the Plaintiffs had produced. He submitted that the three documents added together were good enough for the strike out standard. 86.I deal with the HCB application first in which Mr Tang submitted affirmations. 87.In Chan Chun Chuen v Kao, Lee & Yip (HCA 597/ 2015, [2017] HKEC 2150), Wong DHCJ analysed the abuse of process ground by reference to Mystar Holdings Ltd v 247037 Alberta Ltd [2009] ABQB 480, which he summarised as follows:
88.I have examined Mr Tang’s 3rd and 5th Affirmations submitted in HCB 4475 / 2002. In that Action, Mr Tang was one of the joint and several trustees in bankruptcy of the property of the bankrupt Mr So. In filing an affirmation in support of an application to seek an order to compel all of the respondents to comply with a s 29 Bankruptcy Ordinance order, Mr Tang did not assert that the 1st Plaintiff was the beneficial owner of the Assen Lots and/or the Sky Fair Lots, even though he identified himself as the one of the joint liquidators of the 1st Plaintiff:
89.Even more telling is Mr Tang’s 5th Affirmation submitted in HCB 4475 / 2002 which deposes that the Assen Lots were purchased with a loan from the 1st Plaintiff, which is inconsistent with the Plaintiffs’ pleading in §§13-14 of the ASOC that the 1st Plaintiff provided funding of HK$16 million to purchase the Properties, giving rise to the Trust Allegation:
90.I now address whether there are diametrically opposite positions, and if so, whether this constitutes an abuse of process for striking out under O 18 r 19(1)(d) of RHC. 91.At least for the Assen Lots, I am of the view that §§13-14 of the ASOC that the 1st Plaintiff provided funding of HK$16 million to purchase the Properties (which necessarily includes the Assen Lots), giving rise to the Trust Allegation, is inconsistent and diametrically opposite to the position taken in §15 of Mr Tang’s 5th Affirmation submitted in HCB 4475 / 2002 which Mr Tang refers to the Assen Lots being purchased with a loan from the 1st Plaintiff. 92.Whether or not there is an abuse of process for the Plaintiffs to advance and rely on the funding assertion in this action (giving rise to the Trust Allegation) depends on whether Mr Tang had full knowledge of the facts and whether there is any explanation as to why diametrically inconsistent cases have been advanced by Mr Tang in different proceedings. As pointed out by Brooker J in Mystar, it undermines the integrity of the administration of justice if a litigant with full knowledge is allowed to run diametrically inconsistent cases in different sets of proceedings: Chan Chun Chuen v Kao, Lee & Yip at §68. 93.I am of the view that based on the wording of his affirmation, Mr Tang had full knowledge of the facts: “[i]t is common knowledge and an undeniable fact that the Assen Lots were purchased in 1992 with a loan from Chief Fine …”. It is not a case where a party has admitted an allegation made by its opponent in previous proceedings, but a party taking the initiative to advance a diametrically inconsistent allegation in previous proceedings, the distinction of which is highlighted by Wong DHCJ in Chan Chun Chuen v Kao, Lee & Yip. Furthermore, Mr Tang in his Affirmation filed in opposition to the Striking Out Summonses provides no explanation as to the diametrically opposite positions taken. While Mr Tang explains in §33 of his Affirmation that “[o]wnership of the Properties, whether legal or beneficial, was never part of the s 29 Summons, or arguments of the Trustee therein” and “I had not made any assumptions, arguments or submissions regarding the legal / beneficial ownership of the Properties at all” (at §34), this only goes to explain §31 of Mr Tang’s 3rd Affirmation, and not §15 of Mr Tang’s 5th Affirmation. 94.Mr Tang states at §32 of his Affirmation that “[r]eferences to funding from Chief Fine were made by way of background (to show the relationship between Assen and the Properties with Mr So). There was never any claim of ownership by Mr So or Chief Fine in those proceedings either.” No other explanation has been provided by Mr Tang regarding the loan from the 1st Plaintiff to purchase the Assen Lots as stated in §15 of Mr Tang’s 5th Affirmation. 95.The 1st and 5th Defendants also referred to an undated receipt in the sum of HK$12,946,462 from the 3rd Defendant which records a loan to the 3rd Defendant from the 1st Plaintiff. They submit that a claim of a resulting trust is fundamentally inconsistent and incompatible with there being any loan: Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd (2015) 18 HKCFAR 364 at §97 (per Sir Anthony Mason NPJ). 96.I am not satisfied that Mr Tang has given any plausible explanation for him advancing diametrically inconsistent cases in HCB 4475 / 2002 and in this Action. To a certain extent, his unsatisfactory explanation, coupled with the undated receipt recording a loan to the 3rd Defendant, lend support to the 1st Defendant’s case that it is an abuse of process for the Plaintiffs to advance and rely on the Trust Allegation in respect of the Assen Lots (due to funding from the 1st Plaintiff to purchase the Properties) in this Action. In the absence of any plausible explanation for the Plaintiffs’ inconsistent stance, particularly also in light of the undated receipt in the sum of HK$12,946,462 from the 3rd Defendant which records a loan to the 3rd Defendant from the 1st Plaintiff, I find that it is an abuse of process for the Plaintiffs to advance and rely on the Trust Allegation in this Action. This is a further reason for striking out the Trust Allegation. 97.For completeness, I have considered the other documents referred to by the 1st Defendant but find them equivocal. Given the threshold required for striking out, I am of the view that I cannot make an order for striking out based on those documents alone under the vexatious, frivolous, and abuse of process grounds pursuant to O 18 r 19(1)(b) and (d) of the RHC. (c) Rulings in respect of previous court judgments 98.On 27 July 2015, Mr Tang and Mr Wong as trustees in bankruptcy applied in HCB 4475/2002 to direct Assen, Cheung and other Assen directors to answer questions and to provide documents to assist ascertaining the real worth of Mr So’s shareholding in Assen. 99.On 7 June 2016, Chung J granted an order in favour of the trustees in the 2015 HCB Application (“Chung J’s Decision”). 100.On 12 October 2018, the trustees sought to enforce Chung J’s Decision (“2018 HCB Application”). 101.On 6 June 2019, DHCJ William Wong SC dismissed the 2018 HCB Application (“2019 HCB Decision”). 102.On 29 December 2020, the Court of Appeal dismissed Mr Tang’s appeal against the 2019 HCB Decision and ordered indemnity costs against Mr Tang personally (“2020 CA Judgment”). 103.Mr Lung submits that the Trust Allegation is plainly an attempt to launch a collateral attack on Chung J’s Decision made in HCB 4475/2002 to which Mr Tang was a party as Chung J’s Decision confirmed Assen (the 3rd Defendant) (or Mr So, but not Chief Fine, the 1st Plaintiff) to be the beneficial owner of the Assen Lots:
104.Mr Lung submits that these passages quite clearly held that the Properties were not beneficially owned by the 1st Plaintiff as it was never Mr Tang’s position in the first place. 105.I have reviewed the 1st and 2nd Affirmations of Mr Tang filed for the application for examinations under s 29 of the Bankruptcy Ordinance. This application, and Chung J’s Judgment, is interlocutory in nature. In his 1st Affirmation, Mr Tang states that: (a) “the Bankrupt has been a shareholder (as well as a director) of Assen Limited (“Assen”), a company incorporated in Hong Kong, at the relevant time” (§3); (b) “the Bankrupt has advised the Trustees that he had previously arranged for Assen to purchase various properties, which were funded from related companies then owned by the Bankrupt. The trustees are still investigating these claims from the Bankrupt. According to records available from the Land Registry, Assen is the registered owner of 3 lots of lands in Tuen Mun, the New Territories. The Properties are Lot No 743 of DD 130, the remaining portion of Lot No 746 of DD 130 and Lot No 747 of DD 130, Tuen Mun, New Territories (“the Properties”). The Properties were purchased in 1992 for a total consideration of approximately HK$13,000,000.” (§4); and (c) “Mr Cheung, as managing director of Assen, has replied to most of the Trustees’ letters but has provided virtually little information / documents as requested.” (§5). 106.I am of the view that the Trust Allegation is not a collateral attack on Chung J’s Decision. It is not an attempt to overturn Chung J’s Decision. It is clear from Chung J’s Decision and the Affirmations of Mr Tang that Chung J was not required to make any factual finding as to the beneficial owner of the Properties held by Assen (the 3rd Defendant). This was not considered by the Court. It was not decided as to who was the beneficial owner of the Properties held by Assen. Furthermore, as Mr Tang rightly points out in §37 of his Affirmation filed in opposition to the Striking Out Summonses, save and except the 3rd and 5th Defendant, the Plaintiffs, the 2nd and 4th Defendant are not parties to the s 29 Summons issued by the Trustee of Mr So. The 1st Defendant is also not a party to the s 29 Summons. 107.In Lo Kai Shui v HSBC International Trustee Limited [2023] HKCA 983 Kwan VP of the Court of Appeal observed that:
108.Kwan VP in Lo Kai Shui v HSBC International Trustee Limited at §117 also observed that is not in every instance in which a collateral attack is mounted on a final decision that the subsequent proceedings would be regarded as an abuse of process. Not all relitigation constitutes a collateral attack. As Lord Hobhouse said in Arthur J S Hall at 743C:
109.§18/19/9 of the Hong Kong Civil Procedure 2023 refers to Lord Millett’s observations in Johnson v Gore Wood at §59D:
110.Chung J observed that:
111.In making an order in terms of the trustees’ application, Chung J expressed the view that such investigation would help the trustees’ determination of (among other things) whether the suit properties still belonged to Assen (the 3rd Defendant). It is clear from Chung J’s Decision that no determination at all as to the beneficial owner of the Properties held by Assen (the 3rd Defendant) was made. UNDERVALUE ALLEGATION 112.The Plaintiffs plead at §24 of the ASOC the following:
113.The public auction of the Remaining Properties took place on 10 August 2016, following which the Remaining Assen Lots and the Sky Fair Lots were sold to the 2nd Defendant as the highest bidder at the respective considerations of HK$9,200,000 and HK$2,290,000, being their market values at the material time (Valuation Reports of Grandmax Surveyors Limited (“Grandmax”), both dated 2 August 2016). 114.In clause (a) of the Standard Conditions of Grandmax’s Valuation Reports, Grandmax’s assessment of market value is “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.” 115.Landscope Christie’s conducted the public auction and advertisements of the public auction were placed in Chinese newspapers, Ta Kung Pao News and Wen Wei Po News. According to the Sales Reports prepared by Landscope Christie’s both dated 16 August 2016, three enquiries were received for the Remaining Assen Lots and the Sky Fair Lots during the marketing campaign. 116.The 1st Defendant submits that the Undervalue Allegation is still linked to the Trust Allegation as the 1st Plaintiff can only make the complaint if it has some interest in those Properties. Given my ruling above on the Trust Allegation, the Plaintiffs do not have locus. 117.Notwithstanding my ruling on the Trust Allegation, for the reasons provided below, the Undervalue Allegation should also be struck out. 118.The 1st Defendant submits the Undervalue Allegation is problematic due to three reasons:
119.I have reviewed the previous judgments. These already address the Undervalue Allegation in respect of the Assen Lots. In the 2019 HCB Decision, Mr Tang had been requested to produce an expert report to support his submission regarding the value of the Assen Lots and the auction sale was at an undervalue. None was produced. As DHCJ William Wong observed (at §§33-36):
120.In the 2020 CA Judgment, the Court of Appeal dismissed the trustees’ appeal (namely Mr Tang and Mr Wong Kwok Man). Costs were ordered on an indemnity basis against Mr Tang. The Court of Appeal also observed that as it turned out the proceedings had all along been conducted by Mr Tang himself. The issue of whether the Assen Lots were auctioned at an undervalue was the subject of the Court of Appeal’s decision:
121.On the previous judgments, the 5th Defendant submits as follows:
122.The prevailing principles were encapsulated in the English Court of Appeal’s decision in Kotonou v National Westminster Bank [2015] EWCA Civ 1106:
123.I do not think this is a case of issue estoppel, which requires the parties to be identical in both sets of proceedings, and both sets of litigation to be identical. 124.I am of the view that the rule in Henderson v Henderson is applicable in this situation, which does not require the parties to be the same in both sets of proceedings or both sets of litigation to be identical. In the English Court of Appeal judgment of Bradford & Bingley Building Society v Seddon [1999] 1 WLR 1482, Auld LJ stated as follows (at 1491G):
125.In M C C Proceeds Inc v Lehman Brothers International (Europe) [1998] 4 All ER 675 Mummery and Pill L JJ held that an attempt to reopen a pleaded claim not pursued in an earlier action against a different defendant was an abuse of process. The claimant had for practical purposes abandoned the material claim in the first action, and the issue of title on which it would have turned in the second action against a different defendant claiming through the original defendant had been determined in the first action. 126.In the Court of Appeal judgment of Chiang Lily v Secretary for Justice [2009] HKEC 1562, Ma CJ (at §62) observed that it therefore depends in any given case on the precise circumstances as to whether or not the attempt to raise an issue for determination in proceedings will constitute an abuse where such an issue could have been raised in previous proceedings. Where an issue should have been raised, it is likely that an abuse has occurred. 127.The Henderson principle was approved by the Privy Council in an appeal from Hong Kong in the case of Yat Tung Investment Co Ltd v Dao Heng Bank Ltd and another [1975] A C 581 Lord Kilbrandon at page 590 held that:
128.The focus is on whether Mr Tang, of the 2nd Plaintiff, is misusing or abusing the process of the court by seeking to raise before it an issue, the Undervalue Allegation, which could have been raised in the earlier bankruptcy proceedings of Mr So in HCB 4475/2002. 129.Mr Tang was involved in those proceedings as follows:
130.I need to consider whether in all the circumstances, the Plaintiffs’ conduct is an abuse. The following factors lead me to conclude there is an abuse of process for the Plaintiffs to raise the Undervalue Allegation in this proceeding:
131.The essence of the Henderson doctrine is that a party ought generally not to be permitted to raise in subsequent proceedings matters which that party could and should have raised in earlier proceedings: Ko Hon Yue v Chiu Pik Yuk at §82. It is an abuse of process and the Plaintiffs should be barred from doing so. The Undervalue Allegation - the issue of valuation of the Properties and whether it was sold at an undervalue was in play in 2018. 132.I also bear in mind Ma CJ’s observations in Ko Hon Yue v Chiu Pik Yuk. The abuse can also take the form of the administration of justice being brought into disrepute: see Chiang Lily, 256D–G ([58]) referring to Hunter v Chief Constable of the West Midlands Police [1982] AC 529. Courts in Hong Kong must now, when exercising their procedural powers, increasingly bear in mind not just the parties before them in any particular litigation but also the position of other litigants in the court process. One of the underlying objectives of the court’s procedural powers under the Rules is “to ensure that the resources of the court are distributed fairly”: O 1A r 1(f) of RHC. Section 60 of Conveyancing and Property Ordinance 133.When questioned by the Court, Mr Lung confirmed that the previous judgments deal with the Remaining Assen Lots and not the Sky Lots. 134.However, for the Sky Lots, I have already ruled that it is impossible for the Trust Allegation to succeed (along with the Remaining Assen Lots) and should be struck out. In addition, the 1st Defendant submits that section 60 of the Conveyancing and Property Ordinance does not apply. 135.For the reasons provided below, I agree with the 1st Defendant’s submission. 136.In the Court of Final Appeal decision of Tradepower (Holdings) Ltd v Tradepower (HK) Ltd (2009) 12 HKCFAR 417, Ribeiro PJ explained the application of section 60 of the Conveyancing and Property Ordinance and the rule in Freeman v Pope applicable to the construction of section 60. 137.In Tradepower, the liquidators of a company, C, sought to set aside a disposition of C’s main asset effected with the involvement of the appellants, which included the former directors of C (the Directors). The dispositions were made to another company which the Directors also owned and controlled. 138.The rule in Freeman v Pope operated as follows. If it could be objectively shown that a disposition of property unsupported by consideration was made by a disponor when or so as to become insolvent, resulting in current or future creditors being clearly subjected at least to a significant risk of being unable to recover their debts in full, there would, subject to wholly exceptional circumstances not presently anticipated by the courts, inevitably be grounds to infer an intent to defraud creditors: Tradepower at §88. 139.Where the rule in Freeman v Pope did not operate, whether due to the presence of valuable consideration or the absence of insolvency or relevant detriment to creditors, these being facts for objective determination, an actual intent to defraud creditors had to be shown as an inference properly to be drawn on the available evidence. 140.In Tradepower, the Court of Appeal held that the rule in Freeman v Pope applied and the disposition of C’s main asset was set aside. There had been no consideration for Holding’s disposition of its THK shares, which was conceded by the appellants. Further, the conclusion of insolvency at the relevant time (mid-September 1999) was irresistible, given that Holdings was wound up on 19 April 2000. The evidence was that Holdings had been dormant and without income from a time well before September 1999, and the appellants had not discharged the onus of showing otherwise. In fact, Holdings had faced a claim from Elimor, a creditor, which exceeded US$900,000, upon which Elimor had obtained summary judgment for damages to be assessed. Holdings was also unable even to meet Elimor’s claim to be paid its taxed costs of HK$525,030.50. 141.Accordingly, the Court of Appeal in Tradepower concluded that the rule in Freeman v Pope applied on the facts. The Directors of C caused Holdings to dispose of its principal asset, the THK shares, for no consideration at a time when Holdings was insolvent, thereby subjecting Holdings’ creditors at least to a very real risk of being unable to recover their debts in full. This provides a sufficient basis for inferring that the disposition was made with intent to defraud creditors and for it to be set aside by order of the Court pursuant to section 60 of the Conveyancing and Property Ordinance. 142.Although the 1st Defendant submits that the 1st Defendant (as disponor) was not insolvent or near insolvent at the time of the sale, this is only relevant as to whether the rule in Freeman v Pope applied on the facts. 143.I note from the ASOC, the Plaintiffs did not plead that the 1st Defendant was insolvent at the time of the disposal of the Properties. Rather, it is the Plaintiffs’ case that the 1st Defendant has been actively engaged in lending and other commercial activities in Hong Kong since at least 1996. Even if the 1st Defendant was not insolvent at the time of the disposition (and hence the rule in Freeman v Pope does not apply), it is still open for the Plaintiffs to show an actual intent to defraud creditors as an inference properly to be drawn on the available evidence. 144.However, the issue is not with whether the 1st Defendant was insolvent at the time of the disposal of the Properties but whether the 1st Plaintiff is a creditor in the first place. Section 60 of the Conveyancing and Property Ordinance is only engaged when there is an intent to defraud creditors. 145.At the hearing, Mr Chu acknowledged that the 1st Plaintiff is not a creditor of the 1st Defendant but referred to the Properties as being relevant for section 60 to apply. Mr Lung submits that the 1st Plaintiff is not the 1st Defendant’s creditor but the reverse is true. Section 60 of the Conveyancing and Property Ordinance is inapplicable as it only applies to the creditor of the disponer. 146.I agree. I do not think section 60 of the Conveyancing and Property Ordinance applies in the present case. The Sale of the Properties by the 1st Defendant to the 3rd and 4th Defendants needs to be with an intent to defraud creditors for section 60 to be applicable. The 1st Plaintiff was never a creditor of the 1st Defendant. Rather, it was the other way round as can be seen from the Plaintiffs’ ASOC. On the Plaintiffs’ case:
147.Accordingly the Undervalue Allegation should also be struck out on this basis. 148.I also find that the Undervalue Allegation is frivolous and vexatious, and I would have also struck out this allegation under O 18 r 19(1)(b) of RHC. According to §18/19/7 of the Hong Kong Civil Procedure 2023, a proceeding is frivolous when it is not capable of reasoned argument, without foundation or where it cannot possibly succeed. A proceeding is vexatious when it is oppressive and/or lacks bona fides. The following shows that the Sale was not at an undervalue:
149.Finally, the Plaintiffs aver that the Sale was a sham (§24 of ASOC). Recorder Manzoni KC SC in Polyline stated what was required for a transaction to be a sham (at §101):
150.Under O 18 r 19(1)(a) of RHC, the Court may, either of its own motion or on application, at any stage of the proceedings order to be struck out or amended any pleading on the ground that it discloses no reasonable cause of action. This is alongside the parallel power under the Court’s inherent jurisdiction to strike out pleadings. 151.Mr Chu recognised that this Court is not bound by the submissions of the parties, and referred to the court acting on its own motion to strike out parts of the pleadings. Ms Au also observed that the Court has the jurisdiction to strike out any part of the claim on its own motion. Ms Au stated if the Court disagrees with the submissions of the 1st and 5th Defendants or sees another point not raised by the Defendants, it can exercise its inherent jurisdiction. 152.In Polyline, Recorder Manzoni KC SC observed that the statement of claim in question makes an averment of a common intention, but beyond that mere averment, the only particulars that are given are the reckless indifference or blind-eye knowledge of D1, D2 and D3 pleaded elsewhere. According to Recorder Manzoni KC SC, the reckless indifference and blind-eye knowledge are vague and inadequately particularised but at best they relate only to the “stripping of assets” from the plaintiff and do not show a common intention that the relationship between the parties should be anything other than that which is shown by the document alleged to be a sham. The Court ruled that this plea did not demonstrate a reasonable cause of action that can be established on the facts alleged in the statement of claim. Accordingly it should be struck out (at §§102-103,105). 153.In the ASOC, the elements of a sham transaction have not been pleaded – the common intention of the parties, which parties were involved, that the document (the Sale) was not to create legal rights, but to give to 3rd parties the appearance of the document creating legal rights, and different from the actual legal rights between the parties. Accordingly this plea discloses no reasonable cause of action. It should be struck out. SURRENDER ALLEGATION 154.It is the Plaintiffs’ case that by the acts and/or omissions of the 1st Defendant, it had given up and/or surrendered the purported securities/charges given by the 3rd and 4th Defendants over all of the Properties in relation to the Loan Agreements:
155.The Plaintiffs rely on Rule 126 of the Companies (Winding-Up) Rules (Cap 32H) and Rule 99I of the Bankruptcy Ordinance (Cap 6). 156.Rule 126 of the Companies (Winding-Up) Rules provides that:
157.Rule 99I of the Bankruptcy Ordinance (Cap 6), provides in identical terms of Rule 126 of the Companies (Winding-Up) Rules, that:
158.It is the Plaintiffs’ case that if one files a proof of debt and votes in full, its secured interests are deemed to have been given up and should be shared by all creditors: §27 of Plaintiffs’ skeleton. 159.I do not think that the Surrender Allegation can possibly succeed or is sustainable for the following reasons. 160.Under section 2 of the Bankruptcy Ordinance, “secured creditor” means a person holding a mortgage, charge or lien on the property of the debtor or any part thereof, as a security for a debt due to him from the debtor (emphasis added). 161.Section 264 of the CWUMPO confirms the application of bankruptcy rules in winding up of insolvent companies. Under section 264 of the CWUMPO, in the winding up of an insolvent company the same rules shall prevail and be observed with regard to the respective rights of secured and unsecured creditors and to debts provable and to the valuation of annuities and future and contingent liabilities as are in force for the time being under the law of bankruptcy with respect to the estates of persons adjudged bankrupt, and all persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company may come in under the winding up, and make such claims against the company as they respectively are entitled to by virtue of this section (my emphasis). 162.In Re Fame Dragon International Investment Ltd (unreported, HCCW 373/2016, 20 March 2017), the court considered a petition to wind up Fame Dragon International Investment Limited (“the Company”), a company incorporated in Hong Kong in January 2010, on the basis of a debt due under a loan agreement between the petitioner and the Company in the sum of US$50 million, together with interest. One of the two grounds submitted in opposition to the petition is that the petition debt is fully secured by a pledge of shares which are said to be worth at a conservative estimate US$350 million. 163.Lam J observed in Re Fame Dragon that:
164.Pursuant to the Legal Charge, the 3rd and 4th Defendants respectively charged the Assen Lots and Sky Fair Lots to the 1st Defendant as security for the credit facilities provided by the 1st Defendant to the 1st Plaintiff under the Loan Agreements. Accordingly, while the 1st Defendant is a creditor of the 1st Plaintiff, holding security provided by third parties (3rd and 4th Defendants), the 1st Defendant is not regarded as a secured creditor of the 1st Plaintiff. 165.For the same reasons, the 1st Defendant is not a secured creditor of Mr So or Madam He for the purpose of their bankruptcy, and has never been. 166.The Surrender Allegation is impossible to succeed and unsustainable. It should be struck out. NON-REGISTRATION ALLEGATION 167.The Plaintiffs plead that the 1st Defendant being a non-Hong Kong company not registered in Hong Kong, is not entitled to conduct business in Hong Kong, or to have collected the Resumption Monies including auctioning the Remaining Properties. It is asserted by the Plaintiffs that in breach of section 776 of the Companies Ordinance (Cap 622, laws of Hong Kong), and/or other statutory requirements then prevailing, and/or at common law, the 1st Defendant has conducted business in Hong Kong unlawfully since about 1996. As a result, the Loan Agreements and purported auction ought to be declared invalid and void by the Court. 168.The Plaintiffs’ case is that the 1st Defendant would not be able to defend s 776 of the Companies Ordinance raised in §§ 42 to 43 of the ASOC. By not registering in Hong Kong, the 1st Defendant is deemed to be a non-existent company within the meaning of the statue. The Plaintiffs submit that section 776 of the Companies Ordinance is not only a provision which is criminal in nature but bars the 1st Defendant from enforcing its contracts with the 1st Plaintiff at common law. 169.At the hearing, Mr Chu referred me to the Supreme Court decision of Patel v Mizra [2016] UKSC 42, as referred to in Chitty on Contracts (34th edn) at §§18-029 and 18-029. I do not think this is a case of illegality at all and/or the enforcement of an illegal contract. In Patel v Mirza, Lord Toulson stated that “a contract may be prohibited by a statute; or it may be entered into for an illegal or immoral purpose, which may be that of one or both parties; or performance according to its terms may involve the commission of an offence; or it may be intended by one or both parties to be performed in a way which will involve the commission of an offence; or an unlawful act may be committed in the course of its performance.” (at §3). This is not the case here, which concerns the non-registration in Hong Kong of an overseas company. 170.Mr Chu pointed out that that it was not an “all or nothing approach” so the 1st Defendant would still have a restitutionary claim, but I am of the view this is irrelevant. 171.In Korean Exchange Bank and SSCP Holdings (Hong Kong) Ltd [2015] 1 HKLRD 6, for a contract to be illegal as being made in contravention of statutory provision, there had to be a sufficient nexus between the statutory requirement which was breached and the contract. The question was whether the statute, on its true construction, meant to prohibit the contract or rendered rights acquired and obligations incurred pursuant to the contract unenforceable. 172.The Court in Korean Exchange Bank referred to Curragh Investment Ltd v Cook [1974] 1 WLR 1559. In that case, the vendor company (incorporated in the Isle of Man) entered into a written contract to sell property in Surrey, and the purchaser maintained that the vendor company was not entitled to complete since it had not delivered to the registrar of companies any documents required by ss 407 and 416 of the Companies Act 1948. The vendor company claimed they were not required to do so because they had not established a place of business in England or Scotland. 173.Megarry J in Curragh Investment Ltd v Cook stated as follows:
174.It was held that for a contract to be illegal as being made in contravention of some statutory provision, there had to be a sufficient nexus between the statutory requirement and the contract, and where the statutory requirements were not linked sufficiently, or at all, to the contract, no question of its illegality arose. In that case, even if the vendor company was in breach of the aforesaid statutory provisions, there was no justification for the purchaser’s failure to comply with the vendor’s notice to complete. 175.If the statute prohibits the making of contracts of the type in question, or provides that one of the parties must satisfy certain requirements (eg by obtaining a licence or registering some particulars) before making any contract of the type in question, then the statutory prohibition or requirement may well be sufficiently linked to the contract for questions to arise of the illegality of any contract made in breach of the statutory requirement. 176.Mr Chu submits that the Memorandum of Agreement of Sale dated 10 August 2016 in which the 1st Defendant is the vendor and operating a business in Hong Kong without paying taxes and registration fees gives it a sufficient nexus. The 1st Defendant also transferred the proceeds of the sale of the Remaining Portion of Lot Nos 743, 746 and 747 in DD 130 to Regal Oriental International Limited (letter dated 22 August 2016 from the 1st Defendant to Messrs Keith Lam Lau & Chan). 177.Mr Chu also drew my attention to two public advertisements regarding the 1st Defendant as the mortgagee in possession of the Properties. Mr Chu submits that the 1st Defendant was clearly conducting business in Hong Kong in relation to the Loan Agreements. Finally, the 1st Defendant provided a POD in HCCW 699/2002 in respect of the order granted by the Court of First Instance on 28 February 2001 in HCMP 5367 of 2000. The Plaintiffs pointed out that it was not just one single transaction but a series of transactions involving court litigation, public auction, the buying and selling of land, mortgaging of the land which were all done without proper registration of the 1st Defendant and reporting to the tax authorities. 178.I do not think there is a sufficient nexus here. There is nothing in the Companies Ordinance which bars the 1st Defendant from enforcing its contracts with the 1st Plaintiff. Under section 776(6) of the Companies Ordinance, if a non-Hong Kong company contravenes subsection (2) or (3), the company, every responsible person of the company, and every agent of the company who authorizes or permits the contravention, commit an offence, and each is liable to a fine at level 5 and, in the case of a continuing offence, to a further fine of $1,000 for each day during which the offence continues. Section 776[1] does not state that one of the parties must register as a non-Hong Kong company before making any contract of the type in question. 179.Finally, the Plaintiffs submit that under section 122 of the Companies Ordinance, contracts entered into in the name of a company which has yet to be formed are void as there was a non-existent principal. Subsection 122(3) provides that upon the incorporation of a company, a company may ratify the pre-incorporation contracts. That has not happened. 180.I do not think section 122 of the Companies Ordinance is engaged. Section 122 only applies if a contract purports to have been made in the name or on behalf of a company before the company was incorporated: section 122(1). Even on the Plaintiffs’ case, the 1st Defendant is a company incorporated in the British Virgin Islands pursuant to the companies laws therein (§3 of ASOC). It had been conducting business in Hong Kong since 1996. It is not the case that the 1st Defendant was not incorporated when entering into the Loan Agreements and purported auction but the 1st Defendant was not registered as a registered non-Hong Kong company under section 776. 181.As I have determined above, the statutory requirement to register as a non-Hong Kong company is not sufficiently linked to the Loan Agreements for questions to arise of the illegality of the Loan Agreements and the auctions. 182.The Non-Registration Allegation is unsustainable and impossible to succeed. It should be struck out. CLAIMS AGAINST THE 5TH DEFENDANT 183.The 5th Defendant expressly adopts the same arguments of the 1st Defendant in respect of the Trust Allegation on the Plaintiffs’ locus and the Undervalue Allegation. As I have ruled against the Plaintiffs on those issues, the claims against the 5th Defendant must also be struck out. 184.Notwithstanding my rulings above, I would also have struck out the claims against the 5th Defendant, as well as the 1st Defendant, under O 18 r 19(1)(a) as disclosing no reasonable cause of action for the reasons provided below. 185.The Plaintiffs claim against the 5th Defendant for a declaration that the 5th Defendant has caused loss and damage of the Plaintiffs in conspiring to injure the Plaintiffs. 186.It is the Plaintiffs’ case that the 1st, 2nd and/or 5th Defendants:
187.The Plaintiffs state that the 5th Defendant and his family members were sent by the 1st Defendant as its “representatives” to take control of the 3rd Defendant pursuant to the legal charges in or about 2002: §18 of the ASOC. 188.The Plaintiffs claim that by the dishonest design of the 1st and 5th Defendants, the 3rd Defendant and 4th Defendant remained to be the legal title owners of the Remaining Properties until 10 August 2016: §19 of the ASOC. 189.The dishonest design as alleged is inconsistent with the alleged conspiracy – the conspiracy is alleged to involve the 1st, 2nd and 5th Defendants, whereas the dishonest design only involved the 1st and 5th Defendants. 190.In Pido v Compass Technology Co Ltd [2010] 2 HKLRD 537, Ma CJHC at §§13 and 14 discussed the tort of conspiracy to injure:
191.As a matter of pleading, a case based on conspiracy, must contain the following elements: §17 of Pido
192.The 5th Defendant also referred to ADS v Wheelock Marden & Co Ltd [1994] 2 HKC 264 and Marquis Trading Co & Ors v Associated Bankers Insurance Co Ltd & Ors [1982] HKLR 434. 193.In ADS v Wheelock Marden, Bokhary JA, addressed what was required for pleading conspiracy (at 272D-G):
194.In Marquis Trading Co & Ors v Associated Bankers Insurance Co Ltd & Ors [1982] HKLR 434 at 440, Barker JA held that a statement of claim on conspiracy to defraud should describe the parties to such conspiracy and their relationship with each other, and also allege the agreement between the defendants to conspire as well as state precisely what was the purpose/ object of the alleged conspiracy. It must set out with clarity and precision the overt acts that were alleged to have been carried out in pursuance and in furtherance of the conspiracy. 195.In Polyline, Recorder Manzoni KC SC at §§108-109 observed that:
196.When asked by this Court who were the parties to the agreement and when it took place for the alleged conspiracy, Mr Chu answered the 5th Defendant, as it was already in control and running the 1st Defendant. According to Mr Chu, there has to be an agreement because the 1st Defendant is a BVI unregistered company. According to Mr Chu, the four elements of Pido which were required as a matter of pleading a conspiracy were complied with:
197.Mr Chu referred to §37 of the ASOC and submits that by disposal of the Resumption Monies and Remaining Properties in or around 2005 and 2016 respectively, the entire dishonest scheme was arranged, executed and masterminded by the 5th Defendant who by then was already in control of the 3rd Defendant with the assistance of the 1st and 2nd Defendant. According to Mr Chu, §36 sets out the entire conspiracy claim. This provides as follows:
198.Ms Au drew to the Court’s attention to what was required in a plea of conspiracy. She submits that contrary to the bare assertions of the Plaintiffs that the elements are there, they are not pleaded. No agreement can be ascertained from §36 of the ASOC. 199.I am of the view that the Plaintiffs’ pleading on conspiracy is defective in the following respects. 200.First, although it is alleged that the 1st, 2nd and/or 5th Defendants conspired together to cause loss to the 1st Plaintiff and/or 3rd Defendant and/or 4th Defendant and/or their creditors, neither the particulars of the agreement have been set out, nor the means of carrying out the agreement. The date of the agreement is not pleaded, and what was agreed between the alleged conspirators. 201.Second, the type of conspiracy to injure, whether lawful or unlawful, has not been set out. The Plaintiffs plead an alleged dishonest design but this does not equate to an unlawful conspiracy to injure. No particulars of the 5th Defendant’s (or any of the Defendants’) intention to injure the Plaintiffs have been pleaded – whether predominant (in the case of a lawful means conspiracy) or merely an intention to injure (in the case of an unlawful means conspiracy). 202.Third, the acts that were carried out pursuant to the agreement and the stated intention were not pleaded. What was pleaded are particulars of dishonesty in respect of the alleged dishonest design in §37 of the ASOC. 203.Even if they were pleaded as acts that were carried out pursuant to the agreement, this claim cannot succeed. 204.Sub-paragraphs (i), (ii), and (iii) plead as follows:
205.These sub-paras relate to the Plaintiffs’ Surrender Allegation which I have struck out above. This claim is unsustainable and impossible to succeed. 206.Sub-paragraphs (iv), (v), and (vi) plead as follows:
207.These sub-paras relate to the Plaintiffs’ Trust and Sale at an Undervalue Allegations which I have struck out above. These claims are unsustainable and impossible to succeed. 208.In assessing the Plaintiffs’ conspiracy claim, I also bear in mind that allegations of conspiracy and dishonesty must be pleaded distinctly and with the utmost particularity like allegations of fraud: ADS v Wheelock Marden at 270D. 209.Further, in Polyline, Recorder Manzoni KC SC at §57 referred to Lord Hope of Craighead’s observations on fraud and dishonesty in Three Rivers DC v Bank of England (No 3) [2003] 2 AC 1 at [55]:
210.The Plaintiffs’ claim for conspiracy lacks the following particulars:
211.I am of the view that the ASOC does not identify a reasonable cause of action in conspiracy. Even after receipt of the Striking Out Summonses, the Plaintiffs did not seek to provide further particulars of its conspiracy claim. All that was deleted was “fiduciary” in respect of breach of fiduciary duties in §§47 and 50 of the ASOC. Consequently it should be struck out as disclosing no reasonable cause of action. BREACH OF TRUST CLAIM 212.The 5th Defendant made submissions on the Trust Allegation as disclosing no reasonable cause of action under O 18 r 19(1)(a) of RHC. This is different to the submissions made by the 1st Defendant under O 18 r 19(1)(b) and (d) of RHC in which I am entitled to look at the evidence. 213.The Plaintiffs plead the following regarding the Trust Allegation in the ASOC:
Knowing receipt – §46 of the ASOC 214.A necessary element of each of the causes of action of knowing receipt and dishonest assistance is that there has been a breach of fiduciary duty. It is necessary to plead that breach of fiduciary duty: Polyline at §115. 215.Hoffmann LJ said in El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685, at 700, that, to establish a claim for knowing receipt, a plaintiff must show:
216.Regarding the last requirement, the English Court of Appeal in Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437 held that “[t]he recipient's state of knowledge must be such as to make it unconscionable for him to retain the benefit of the receipt” (per Nourse LJ, with whom Ward and Sedley LJJ agreed, at 455). 217.In Byers & Others v The Saudi National Bank [2022] EWCA Civ 43, Newey LJ of the Court of Appeal observed that “[s]uccess in a knowing receipt claim depends, as it seems to us, on establishing, as Hoffmann LJ’s summary indicates, “beneficial receipt by the defendant of assets which are traceable as representing the assets of the [claimant]”: at §22. 218.No such beneficial receipt is pleaded by the Plaintiffs in the ASOC. 219.The Supreme Court judgment of Byers & Others v The Saudi National Bank [2023] UKSC 51 referred to BCCI v Akindele [2001] Ch 437 (at para 81). In BCCI v Akindele, the defendant received a net US$6.679m of the claimant companies’ money pursuant to a fraudulent scheme by the employees of one of them. A claim to recover the money failed due to the defendant’s lack of the requisite knowledge, for either dishonest assistance (then still called knowing assistance) or knowing receipt. 220.No such requisite knowledge of receipt of alleged trust property by the Defendants is pleaded by the Plaintiffs in the ASOC. 221.In this case, there is no pleading of how the 1st and 5th Defendants came to be in knowing receipt of the Remaining Properties and/or the Resumption Monies. 222.There is no pleading of the requirements of knowing receipt – a disposal of the Plaintiffs’ assets in breach of the Defendants’ fiduciary duties, the beneficial receipt by the Defendants, and knowledge on the part of the Defendants that the assets they received are traceable to a breach of fiduciary duty. In fact, in §§47 and 50 of the ASOC, the Plaintiffs have amended these paragraphs to delete “fiduciary” in respect of the alleged breach of duties owed to the 1st Plaintiff. Breach of duties – §§47 and 50 of the ASOC 223.There is no pleading as to what duties were owed to the 1st Plaintiff by the 1st and 5th Defendants, and how these duties were allegedly owed. I also refer to my observations above regarding breach of fiduciary duties. Secret profits – §49 of the ASOC 224.A claim for an account is not a remedy for a wrong, but is a claim as of right once a trust or fiduciary relationship is established: Libertarian Investments Ltd v Hall (2013) 16 HKCFAR per Lord Millett NPJ at [167]. Consequently, whilst it is correct for the ASOC to plead the entitlement, it is not a cause of action in itself: Polyline at §39. 225.If the Trust Allegation is unsustainable, then there would be no order for account for secret profits. Putting that aside, the pleading in §49 is the first reference to secret profits in the ASOC. Nowhere in the ASOC does it state that the 1st and 5th Defendants profited from their secret profits. 226.Given my analysis above, I am also of the view that §§46, 47, 49, and 50 of the ASOC should also be struck out on the basis that they disclose no reasonable cause of action. DISPOSITION 227.For all the reasons above, the 1st and 5th Defendants succeed in their applications to strike out the ASOC. 228.I make an order in terms of paragraph 1 of the 1st Defendant’s summons dated 28 July 2023. I also make an order in terms of paragraph 1 of the 5th Defendant’s summons dated 25 July 2023. 229.Costs should follow the event. The 1st and 5th Defendants seek costs on an indemnity basis. I am not prepared to so order in the order nisi. I make a costs order nisi that the 1st and 2nd Plaintiffs do pay the 1st and 5th Defendants the costs of their Striking Out Summonses with certificate for one counsel. I am minded to order summary assessment. Any party who seeks any variation or summary assessment should lodge their submissions within 14 days from the date hereof, response within 7 days upon receipt, and reply within 7 days thereafter. 230.I thank counsel for their helpful submissions rendered to the court.
Mr George Chu instructed by K B Chau & Co. on behalf of the 1st and 2nd Plaintiffs Mr Vincent Lung and Ms Ivy Ho, instructed by Keith Lam Lau & Chan on behalf of the 1st Defendant Ms Austina Au instructed by Hom & Associates on behalf of the 5th Defendant [1] Under section 776 of the Companies Ordinance “Certain non-Hong Kong companies must apply for registration” (1)This section applies to—
(2)A non-Hong Kong company falling within subsection (1)(a) must, within one month after the establishment of the place of business, apply to the Registrar for registration as a registered non-Hong Kong company. (3)A non-Hong Kong company falling within subsection (1)(b) must, within one month after the commencement date of this Part, apply to the Registrar for registration as a registered non-Hong Kong company. |
Cases cited in this judgment
Further hearings and rulings under HCA 996/2022